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Ageing Population must be mitigated, not stopped: Here’s why.

May 9, 2021
Editor(s): Anuk Kariyawasam
Writer(s): Andrew Allen, Ben Griffiths, Jade Chen

Introduction

Arguably one of the greatest challenges faced by many global economies at the moment is the idea of an ageing population. As more and more individuals move out of the workforce and into retirement/older age groups, governments are finding themselves stumped by a shrinking labour force and an ever-increasing age-dependency ratio that places significant pressure on social welfare systems and the economy in general. Such a complicated issue has prompted the suggestion of many different kinds of policy, whether it is encouraging families to have more kids or providing them with financial relief to manage work and family balance. Yet, if these policies are ineffective, what other ways can governments best deal with these issues?

What is Population Ageing?

Population ageing refers to changes in the age demographic of a population such that there is an increased proportion of older individuals, which can most appropriately be observed through an age pyramid as seen in figure 1. The more minute reasons for an ageing population vary from country to country, however, they can be narrowed down to a few universal explanations. There is a trending decline in fertility rates, an increase in life expectancy, and the progression of larger-sized age cohorts to older age levels. That is to say, there is a decrease in the number of women giving birth to multiple (if any) children, there is an increase in the average period an individual is expected to live (primarily due to medical and technological advancements), and that uniquely dense generations of individuals, such as the ‘baby boomers’, are progressing towards older age.

Figure 1 (Age Pyramid – Australia)

Why is this an issue for governments?

As mentioned earlier, this can vary depending on the country of concern, yet in a broad and generalised context, there are a few consistent variables that are frequently observed. These include increased pressure on social support systems (such as pensions and insurance), increased health care costs, and an increased dependency ratio, which is directly related to a decline in the working-age population.

The underpinning similarity is that all these factors have the capacity to drastically impact the economic health of a nation, largely due to the nature of economic structures that rely on the maximisation of workforce potential. This is already being observed in China and Japan; two countries reeling from the impact of a shrinking labour force and skyrocketing age-dependency ratios that are tangibly hindering GDP growth.

China: A Case Study for an Ageing Population

China is on track to face a similar problem due to consistently decreasing birth rates, resulting in a potential demographic cliff, wherein a high age-dependency ratio stifles its remarkable growth in a similar manner to Japan. However, unlike Japan, China has arguably accelerated this trend as a result of the infamous one-child policy of 1980, whereby prospective parents were only allowed to have a single child, with some exceptions. While China was experiencing a similar decline in birth-rates – a phenomenon observed across the world – the addition of this policy has been an additional key driver before ultimately being abandoned in favour of a two-child policy in 2016.

This is unlikely to reverse the impending population decline predicted by projections (figure 2).

Figure 2 (Chinese Annual Population Growth)

This impact is also distributed heterogeneously as urbanisation results in younger people increasingly moving to cities as older people are left behind in increasingly ageing rural provinces.

In recognition of these problems, the Chinese government is looking to implement new pro-natalist policies in an effort to reverse this trend. However, the specifics of this proposal remain to be seen, although there are a number of available policy options that other countries have previously attempted.

The Futility of Fertility Increasing Schemes

As can be seen in Figure 3, these policies range from financial incentives via baby bonuses and family allowances, to policies that improve workplace flexibility and render it easier to balance the careers of both parents with the needs of raising children. These policies theoretically improve fertility by lowering the financial and structural barriers to having children, which in turn results in having more children.

Figure 3 (Policies to Encourage Work-Life Balance)

Unfortunately, these policies have had limited success thus far in reversing the global trend towards an increasing age-dependency ratio (figure 4). This is because there are broader drivers behind the increase such as voluntary childlessness, increased life expectancy, the costs of children exceeding government incentives, and much-needed improvements in women’s autonomy and family planning services.

Figure 4 (Age Dependency Ratios by Region)

Complex Problems Require Creative Solutions

In light of the negatives, it is crucial to remain optimistic as the pressing issues regarding an ageing population have been recognised in China. It is now critical to take measures against this contemporary trend to uphold an efficient societal balance. For China as of recently, there have been active discussions based on raising the “statutory retirement age in a phased manner”, and fully relaxing current birth restrictions within the next 5 years to halt the effects of an ageing population.

Some potential plans that may be examined include immigration, which is also a potential option considered by Australia, although further planning of actual policy designs is still under consideration. In contribution, although monetary initiatives such as birth bonuses and subsidised childcare discussed previously can be scrutinised, they have not yielded significantly positive results in European countries such as Italy and therefore, may have to be considered with caution.

However, despite the difficulties induced by an ageing population, governments around the world should still aim to maintain a functional society. Some actions taken are listed by the United Nations which include: advocating healthier lifestyles, encouraging lifelong learning, and promoting private savings and investing. The importance of this can be supported by examples such as Japan where individuals aged over 65 are increasingly living alone, therefore accentuating the need for economic independence among the elderly population (“Government policies to address population ageing”, 2021). For these reasons, the policies suggested may all serve as means to support society and economic wellbeing amidst the consequences of an ageing population.

Conclusion

As a result, although the effects of an ageing population have disseminated across time, it has also exhibited indications that China, as well as other countries experiencing the same phenomenon, have undergone resolute development within the past decades. This is substantiated by more advocacy in female empowerment, increased educational opportunities, and more effective family planning which are positive societal attributes that should continuously perpetuate. As the repercussions of an ageing population have been a worldwide occurrence, it is now pivotal for nations to cooperate in order to ascertain resolutions for our society’s welfare and perpetual prosperity.


References

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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Anuk Kariyawasam
Editor

I'm a Bachelor of Commerce student in my penultimate year majoring in Economics and Management. My key interests are macroeconomics and technology. As an editor at Cainz, I hope to produce insightful, meticulously researched articles on a wide range of topics.

Andrew Allen
Writer

My name is Andrew Allen and I am currently studying a Bachelor of Commerce at the University of Melbourne, with an interest in Finance and Management. I thoroughly enjoy writing about commerce-related topics, and as such you will find me writing articles in the CAINZ Digest section !

Ben Griffiths
Writer
Jade Chen
Writer